Ex­perts Feel Fis­cal Deficit May Miss 3.3% Tar­get, Slip To 4%

The Times of India (New Delhi edition) - - Times Nation - Suro­[email protected] times­group.com

New Delhi: The sharp cut in cor­po­rate tax rates un­veiled by fi­nance min­is­ter Nir­mala Sithara­man on Friday poses a risk for the fis­cal deficit tar­get, bud­geted at 3.3% of gross do­mes­tic prod­uct.

The cuts in cor­po­rate tax rates have come at a time when col­lec­tions of both di­rect and in­di­rect taxes have been slug­gish and the gov­ern­ment es­ti­mates Friday’s cuts will mean a rev­enue loss of Rs 1.45 lakh crore. The gov­ern­ment has also fore­gone rev­enues in other steps an­nounced ear­lier such as ex­port in­cen­tives and scrap­ping the su­per­rich sur­charge on for­eign and do­mes­tic port­fo­lio in­vestors.

Sev­eral economists TOI spoke to said they ex­pect the gov­ern­ment to over­shoot the fis­cal deficit tar­get for the cur­rent year with for­mer RBI gov­er­nor C Ran­gara­jan peg­ging it closer to 4% of GDP.

“It is a bold ef­fort but the im­pact of the re­duc­tion may take some time. It may not re­ally hap­pen this year, but as a long-term goal, re­duc­tion of cor­po­rate tax rate has al­ways been an ob­jec­tive,” Ran­gara­jan told TOI.

“The loss of rev­enue is es­ti­mated at roughly 0.7% of GDP. Since the rev­enues are slug­gish now, it is more likely the fis­cal deficit prob­a­bly will go be­yond 3.5% or closer to 4%,” he said, cau­tion­ing that fis­cal deficit can­not be over­looked and ev­ery ef­fort must be made to ad­here to the tar­get.

Over the past few years, there has been a de­bate about the need to strictly ad­here to fis­cal deficit tar­gets. Some ex­perts have ad­vo­cated re­lax­ing the tar­gets to boost growth but the gov­ern­ment has pre­ferred to go with the fis­cal con­ser­va­tives, con­cerned about the im­pact of a high deficit on in­ter­est rates and the over­all econ­omy. Against the back­drop of slug­gish eco­nomic growth, con­cerns have grown about the gov­ern­ment’s abil­ity to meet the bud­get’s rev­enue tar­gets. The gov­ern­ment has es­ti­mated gross tax rev­enues to grow by 9.5%, slower than the 17.2% es­ti­mated for the pre­vi­ous fis­cal year.

GST rev­enues are also ex­pected to grow mod­estly due to the fine-tun­ing of the tax re­form mea­sure. The gov­ern­ment has also es­ti­mated lower cap­i­tal ex­pen­di­ture at 1.6% of GDP, marginally lower than the 1.7% in the pre­vi­ous year.

The gov­ern­ment, how­ever, ex­pects Rs 1.05 lakh crore from sell­ing its stake in staterun firms in the cur­rent fis­cal year and is con­fi­dent of meet­ing the am­bi­tious tar­get.

As a bo­nanza, it has re­ceived a sur­plus trans­fer of Rs 1.76 lakh crore, of which Rs 90,000 crore was ac­counted for in the bud­get. It also hopes to raise Rs 50,520 crore from spec­trum sales, but this would de­pend on whether the gov­ern­ment goes ahead with it and there is enough de­mand.

The gov­ern­ment is un­likely to go for ex­pen­di­ture cuts to meet the deficit tar­get. A pickup in growth and rev­enues in the se­cond half of the fis­cal year may help cush­ion some of the im­pact. Tax ex­perts said that with the growth in tax col­lec­tions be­ing lower than bud­geted, the ac­tual rev­enue loss may be lower than the es­ti­mated Rs 1.45 lakh crore. Some of them even said they don’t ex­pect the cor­po­rate tax re­duc­tion to hurt the deficit tar­get and a pick-up in eco­nomic ac­tiv­ity would help.

“Re­duc­tion in tax would not au­to­mat­i­cally lead to tax rev­enue losses on a pro rata ba­sis. We un­der­stand the cuts would in­crease the tax base by at­tract­ing more eco­nomic ac­tiv­ity. Ideally, one needs to assess the net im­pact af­ter tak­ing care of pos­i­tive knock-on ef­fects of the tax re­duc­tion on the econ­omy,” said NR Bhanu­murthy, pro­fes­sor at NIPFP. “It would help widen eco­nomic ac­tiv­ity. I am more op­ti­mistic that this mea­sure would cre­ate a pos­i­tive im­pact,” he said.

GAM­BLING ON GROWTH

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